William O' Neal 3.

Bernard Baruch, a famous market operator on Wall Street and trusted
advisor to U.S. presidents said, "If a speculator is correct half of the
time, he is hitting a good average. Even being right three or four times
out of 10 should yield a person a fortune if he has the sense to cut his
losses quickly on the ventures where he has been wrong."


People think a successful person is either kicky or right most of the
time. This is not so. Successful people make many mistakes. Their successes
are a result of hard work rather than their being lucky. They succeed
in spite of their mistakes because they try much harder and more
often than the average person does. There just aren't many overnight
successes. Success takes time.


Before we delve further into the intriguing shell game of when to sell,
let's define two misunderstood words. These words are speculator and
investor.
Bernard Baruch interpreted speculator as follows: "The word speculator
comes from the Latin 'speculari' which means to spy and observe. A
speculator, therefore, is a person who observes and acts before it
occurs."
Jesse Livermore, another old-time stock market legend, defined
investor this way: "Investors are the big gamblers. They make a bet, stay
with it, and if it goes wrong, they lose it all."
These definitions are a bit different than those you will read in
Webster's Dictionary. But we know Baruch and Livermore on occasion
made millions of dollars in the stock market. We're not sure about
Webster.
One of my primary goals is to convince you to question many of the
investment ideas, beliefs, and methods you have heard about or used in
the past.
The amount of erroneous information and ignorance about how the
stock market really works and how to succeed in the market is downright
unbelievable.

When you say, "I can't sell a stock because I don't want to take a loss,"
you assume that what you want has some bearing on the situation. Yet
the stock does not know who you are, and it doesn't care what you hope
or want.
Furthermore, you may believe that if you sell the stock you will be taking
the loss, but selling doesn't give you the loss; you already have it. If
you think a loss is not incurred until you sell the stock, you may be kidding
yourself. The larger the paper loss, the more real it will become



I am talking about cutting your loss when it is 7% or 8% below the
price you paid. Once you are ahead and have a good profit, you can
afford to, and should, allow the stock more than 7% or 8% room for
normal fluctuations in price. Do not sell a stock just because it's off 7%
to 8% from its peak price.
When the late Gerald M. Loeb of E. F. Hutton was writing his last
book on the stock market, I had the pleasure of discussing this issue
with him in my office. In his first work, The Battle for Investment
Survival, Loeb advocated cutting all losses at 10%. I was curious and
asked him if he followed the 10% loss policy himself. He said, "I would
hope to be out long before they ever reach 10%."
Bill Astrop, president of Astrop Advisory Corporation in Atlanta,
Georgia, suggests a minor revision of the 10% loss-cutting plan. He feels
individual investors should sell half of their position in a stock if it is
down 5% from their cost and the other half once it is down 10% below
the price paid.
To preserve your hard-earned money, I think 7% or 8% should be the
limit. Your overall average of all losses should be less, perhaps 5% or
6% if you are strict and fast on your feet.




Letting your losses run is the most serious mistake made by almost all
investors! You positively must accept that mistakes in either timing or
selection of stocks are going to be made by even the most professional
investors. In fact, I would go so far as to say if you aren't willing to cut
short and take your losses, then you probably should not buy stocks.
Would you drive your car down the street without brakes?